OREANDA-NEWS. If we were terrified by the increase in prices in the extent of 7 per cent half a year ago, now inflation has almost increased to 10 per cent, reported the press-centre of Latvijas Krajbanka.

The causes of high inflation remain the same – increase in the prices of food and food services and the increase in expenses in relation to domestic goods and services. In July tobacco had a material influence on monthly inflation, which is probably the only product whose increase in price is not such a sore point, because consumers have their choice – to smoke or not to smoke. But for example, bread, milk and meat whose prices rise every month are impossible to be excluded from daily consumption. Also if a little slackening in the prices of vegetables and fruits could be observed in the summer months, then the increase in prices of fruits has played a considerable role in inflation rates this year.

In general the numbers are quite shocking, especially if we consider that the trends in price increases are not likely to be changing in the near future. The already regular increase of gas tariffs took place in July and August, which will continue also in 2008 due to the gas supply price increasing by 30%. Most likely the increase in other administratively regulated prices will also follow. In July the oil prices increased materially, and despite the decrease of prices in August, oil prices are going to retain their high level, therefore adding to inflationary pressure in Latvia. And, certainly, the persistently high inflation rates still keep on raising expectations for inflation which are already high. Considering all these factors, it can be concluded, that the yearly inflation forecasts in the extent of 8%, which were described as pessimistic, seem quite optimistic now.

However, if we take a general look at the inflation trends in Latvia, it can be concluded that nothing exceptional is happening: in a global view we are a developing country. Developing countries usually have rapid economic growth rates and also high inflation. Therefore there is no reason to expect low inflation, if the economy is still in a reform stage and GDP growth is more than 10%. Also our neighbouring countries have similar trends: a more rapid increase in prices was also observed in July in both Lithuania and Estonia.